1 Microfinance As a Poverty Alleviation Tool for Women in Ghana's Informal Sector?

107 Pages·2013·0.72 MB·English

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Microfinance As a Poverty Alleviation Tool for Women in
Ghana’s Informal Sector?

By
David McDonald

A Thesis Submitted to Saint Mary’s University,
Halifax, Nova Scotia In Partial Fulfillment of the Requirements for
the Degree of Bachelor of Arts in International Development Studies

April 2013, Halifax, Nova Scotia
© David McDonald, 2013

Approved: Dr. Suzanne Dansereau
Supervisor
Approved: Dr. Anthony O’Malley
Examiner

April 30, 2013
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Microfinance as a Poverty Alleviation Tool for Women in Ghana’s Informal Sector?

By David McDonald

Abstract:

Poverty alleviation has directly and indirectly played a major role in development theory
and projects over time. In recent years, microfinance became a popular poverty
alleviation tool, incorporated as part of the Poverty Reduction Strategy Papers (PRSPs) of
various developing countries and contributing to the fulfillment of the Millennium
Development Goals (MDGs). Microfinance is the delivery of banking services to the
poor to help them to start or expand an income-earning activity and thereby escape
poverty.

This study aims to explore whether microfinance is an effective poverty alleviation tool
for women in Ghana’s informal sector. The objectives of this study are to identify the
major poverty and development theories and schemes with a particular focus on
microfinance, to provide background data on Ghana’s development and poverty policies
since the 1980’s, to examine the challenges facing Ghana’s microfinance sector, to use
the NGO Sinapi Aba Trust as a case study providing us with an example of a large
microfinance institution (MFI) operating in Ghana that has made a moderate impact on
poverty alleviation, and to recommend solutions for how microfinance in Ghana could be
more effective in poverty alleviation. This paper suggests that microfinance has made
only limited progress as a poverty alleviation scheme for women in Ghana’s informal
sector because despite moderate improvement in building assets and reducing
vulnerabilities, microfinance clients have not been lifted out of poverty, but have instead
progressed to a more modest form of poverty. Also, microfinance is currently not
reaching the poorest segments of the population because of the perceived risk of clients
has driven MFIs to operate in areas that are not being served by microfinance.

30 April, 2013
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Microfinance as a Poverty Alleviation Tool for Women in Ghana’s Informal Sector?

Table of Contents

CHAPTER 1: INTRODUCTION________________________________________ 7-9

CHAPTER 2: LITERATURE REVIEW_____________________________________
Poverty and Development…………………………………………………..........10
Poverty Perspectives…………………………………………………...………...12
Income Approach………………………………………………………...12
Capabilities Approach……………………………………………………13
Structuralist Approach…………………………………………………...13
Competing Approaches to Development Theory: 1950-1990’s …………….......14
Modernization Theory……………………………………………………14
Structuralism/Dependency Theory/World Systems Theory ………….…17
Basic Needs Approach…………………………………………………...22
Structural Adjustment Programs (SAPs)...................................................24
Livelihoods Approach……………………………………………………25
Neoliberal Approaches to Poverty as a Development Model……………………27
Poverty Reduction Strategy Papers (PRSPs).............................................27
Jeffrey Sachs Poverty Approach…………………………………………29
Microfinance as a Poverty Alleviation Tool.....………………………………….31
Thesis Statement………………………………………………………………..36
Methodology…………………………………………………………….………37

CHAPTER 3: DEVELOPMENT POLICY AND POVERTY ALLEVIATION IN
GHANA: 1980s-2000s_____________________________________________________
Economic Crisis that Precipitated SAP Policies in Ghana………………………40
The Economic Recovery Program (ERP)…………………………………..……42
Positive Impacts of the ERPs………………………………………...…..46
Negative Impacts of the ERPs…………………………………………...46
Ghana’s Poverty Reduction Strategy (GPRS I)………………………………….48
Growth and Poverty Reduction Strategy (GPRS II)…………………………..…52
Impacts of PRSPs in Ghana……………………………………………...53
Progress Towards the Millennium Development Goals (MDGs)……………..…54
CHAPTER 4: MICROFINANCE AS A POVERTY ALLEVIATION TOOL IN____
GHANA________________________________________________________________
An Overview of Microfinance in Ghana…………………………………………60
The Different Types of Microfinance Institutions……………………………….62
The Role of Government and Development Partners……………………………68
How the Financial Regulatory Framework Affects Microfinance……………….69
Challenges Facing the Microfinance Sector…………………………………..…69
Case Study of Sinapi Aba Trust (SAT)…………………………………………..70
An Overview of SAT…………………………………………………….71
Product and Services of SAT………………………………………….…72
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Performance……………………………………………………...………74
Key Findings…………………………………………………………..…77

CHAPTER 5: CONCLUSION______________________________________________
Synthesis of Findings…………………………………………………………….84
How Microfinance Contributes to Poverty Alleviation………………………….87
Contribution to Poverty and Development………………………………………90
Recommendations…………………………………………………………..……92

BIBLIOGRAPHY__________________________________________________98-105
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Acronyms and Abbreviations
AGS Accelerated Growth Strategy
ASCA Accumulating Savings and Credit Association
BBG Barclays Bank of Ghana
BNA Basic Needs Approach
BOB Bank of Ghana
CU Credit Union
CWS Client Welfare Scheme
ECLA United Nations Economic Commission for Latin America
ERP Economic Recovery Program
FNGO Financial Non-Governmental Organization
GDP Gross Domestic Product
GLSS Ghana Living Standards Survey
GOG Government of Ghana
GPRS I Ghana Poverty Reduction Strategy
GPRS II Growth and Poverty Reduction Strategy
ISI Import Substitution Industrialization
LAS Latin American Structuralism
GHAMFIN Ghana Microfinance Institutions Network
GHC Ghanaian Cedis
GPRP/SIF Ghana Poverty Reduction Project/Social Investment Fund
HDI Human Development Index
HPI Human Poverty Index
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HPIC Heavily Indebted Poor Countries Initiative
IMF International Monetary Fund
MASLOC The Microfinance and Small Loans Center
MDGs Millennium Development Goals
MFI Microfinance Institution
MNC Multinational Corporation
NDC National Democratic Congress
N.P.P New Patriotic Party
PAMSCAD Program of Actions to Mitigate the Social Costs of Development
PNDC Provisional National Defence Council
ODA Official Development Assistance
PRS Poverty Reduction Strategy
PRSP Poverty Reduction Strategy Paper
RCB Rural and Community Bank
ROSCA Rotating Savings and Credit Association
SAP Structural Adjustment Program
SAT Sinapi Aba Trust
SIF Social Investment Fund
S&L Savings and Loans Company
SSE Small Scale Enterprise
WB World Bank
WDC Worker Defence Committees
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Chapter 1: Introduction
The specific area of development that will be discussed is Ghana, which is a
relatively small country located on the West African coastline that has a multitude of
diversity of languages, ethnicities and an enduring democratic government. Its
population is close to twenty five million, at 24 333 000 in 2010 (UNECA, 2011, 62).
Despite high levels of poverty, Ghana is widely considered among the leading countries
in Sub-Saharan Africa economically. Ghana’s economy is heavily influenced by the
informal sector of which 85 percent of Ghana’s active population is part of (ICFTU,
2004). Women play a central role in informal sector activities, especially in agriculture
where women make up 80% of the subsistence food crop farming (Abeliwine, 2011).
The specific development problematic that I will be looking into for this thesis is
the issue of the poverty women face in Ghana’s informal sector. The justification for
looking into this particular area is that while there are millions of women working in the
informal sector in Ghana, many are living in poverty. While the informal sector is
significant to both Ghana’s economy and to the livelihoods of the local people in the
towns and cities in which they are located, informal workers are only able to obtain about
US $2 a day (Asiedu & Agyei-Mensah, 2011: 8). While enough to escape the extreme
levels of poverty characterized by the World Bank measurement of $1 a day, most
informal workers are not able to make more than a subsistence standard of living. Being
on the edge of subsistence living ensures that acquiring savings is nearly impossible.
Without accessible credit and a low level of savings informal sector workers are not able
to accumulate capital and develop their microenterprises. It should be noted that formal
financial creditors are not inclined to loan to informal workers because of the perception
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that informal businesses are not stable or structured enough to acquire a loan. Mainly
that this is because most informal borrowers in Ghana do not have standard collateral.
Inaccessible credit therefore limits the potential of women in Ghana to become successful
entrepreneurs and escape poverty through income earning activities in the informal
sector.
Chapter 2 is the literature review, which will explore the theoretical issues and
debates around poverty and development, and microfinance as a poverty alleviation tool
for women. The literature review begins with debates around: the different approaches to
framing the poverty debate, the various poverty alleviation schemes that have been
attempted in developing countries, and the issues and debates centred on microfinance.
Chapter 3 presents Ghana’s development and poverty alleviation policies from the
1980s-2000s. This will begin with the economic crisis that precipitated the SAP policies
in Ghana. This will be followed with the SAPs and their social and economic impacts.
This will be followed with data on Ghana’s two PRSPs; The GPRS I and GPRS II. The
chapter will finish by providing data on Ghana’s progress towards the MDGs.
Chapter 4 provides empirical data on Ghana’s microfinance sector. The chapter
will be start with an overview of Ghana’s microfinance sector as a whole. The different
types of financial institutions that provide microfinance will be outlined and the role of
government and development partners. The chapter will also demonstrate the challenges
facing the microfinance sector. A case study of the NGO Sinapi Aba Trust (SAT) will be
presented in order to examine the poverty alleviation potential of microfinance for
women in Ghana’s informal sector.
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Chapter 5 is my conclusion and recommendations in regards to my findings. This
chapter will synthesis the findings of this thesis. The chapter will also examine in what
ways microfinance is useful and not useful for poverty alleviation in Ghana. The chapter
will also explore microfinance contribution to poverty and development. The chapter
will end with recommendations for the microfinance sector in Ghana to be more effective
as a poverty alleviation tool.
The research question being posed explored is whether microfinance been
effective in alleviating poverty for women in Ghana’s informal sector. Microfinance may
provide a solution for impoverished women in the informal sector of Ghana who do not
have access to financial services. This does not necessarily mean that microfinance will
result in a lift out of poverty or if microfinance reaches the poorest segments of Ghana’s
population. The argument being put forward is that microfinance has generally not led to
a lift out of poverty for microfinance clients in Ghana, or has reached Ghana’s most poor.
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Chapter 2: Literature Review
In reviewing the literature, there are theoretical issues and debates around poverty
and development, and microfinance as a poverty alleviation tool for women. It is
important to outline the consider the different approaches to framing the poverty debate
that have been used in order to provide a theoretical lens for examining microfinance as a
poverty alleviation tool. SAPs are mentioned in order to provide context for the PRSPs,
which are the dominant poverty alleviation scheme used by developing countries.
Furthermore, it is imperative to look at the various issues and debates centred on
microfinance in order to introduce to concepts that will be discussed in further chapters
on microfinance as a poverty alleviation tool for women in Ghana.

Poverty and Development
Poverty is central to the study of international development. International
development began after the Second World War when the allies, led by the United States,
attempted to rebuild wartime economies and create international institutions, which could
restore order to world politics (Dodds, 2002: 3). During this process of economic and
political reconstruction, the Truman administration took a particular interest in the
condition of underdeveloped areas. On 20 January 1949, Truman announced his in point
four of his Inaugural Address a plan for the rest of the world based on greater production
as the key to prosperity and peace.
We must embark on a bold new program for making the benefits of our scientific
advances and industrial progress available for the improvement and growth of
underdeveloped areas. More than half the people of the world are living in
conditions approaching misery. Their food is inadequate. They are victims of
disease. Their economic life is primitive and stagnant. Their poverty is a
handicap and a threat both to them and to more prosperous areas. For the first